Sunday, January 3, 2010

The Best of Times, the Worst of Times

I've tried to avoid reading and/or commenting on the seemingly omnipresent wailing and gnashing over how bad this past decade - the "awful aughts" - was.  It always struck me as both self-centered ("look at how critical I can be about my decade!") and somewhat progressive ("everyone's miserable, so government must now save us!") to claim that the just-ended year/decade/century was oh-so-horrible.  Moreover, it also seemed to me that the people who believe that the aughts were the worst.decade.ever have intentionally ignored many of the awesome things that these past 10 years have produced, at home and abroad.  And most of this is the direct product - or by-product - of good ol' fashioned free market capitalism.

Fortunately, a few sane individuals have stepped up to rebut the aughts' depressing criticism.  For example, GMU's Tyler Cowen reminds us that not everything is about the United States:
The raging economic growth rates of China and India are well known, though their rise is part of a broader trend in the economic development of poorer countries. Ideals of prosperity, freedom and the rule of law have probably never been more resonant globally than they’ve been over the last 10 years, even if practice often falls short. And for all of the anticapitalistic rhetoric that has emerged from the financial crisis, national leaders around the world are embracing the commercialization of their economies.

Putting aside the United States, which ranks third, the four most populous countries are China, India, Indonesia and Brazil, accounting for more than 40 percent of the world’s people. And all four have made great strides. Indonesia had solid economic growth during the entire decade, mostly in the 5 to 6 percent annual range. That came after its very turbulent 1990s, marked by a disastrous financial crisis and plummeting standards of living.

Brazil also had a consistently good decade, with growth at times exceeding 5 percent a year. There is lots of talk that the country has finally turned the corner, and, within its borders, there is major worry that its currency is too strong — a problem that many other countries would envy.

Elsewhere in South America, Colombia and Peru have made enormous progress and Chile is on the verge of becoming a “developed” country; it will soon be joining the Organization for Economic Cooperation and Development.

To be sure, in Africa, there is still enormous misery. Nonetheless, overall standards of living rose in a wide variety of countries there, with economic growth for the continent as a whole at more than 5 percent in most years. Many basic essentials, like water, sanitation, electricity and especially telephones, are more commonly available.

One lesson from all of this is that steady economic growth is an underreported news story — and to our own detriment. As human beings, we are prone to focus on very dramatic, visible events, such as confrontations with political enemies or the personal qualities of leaders, whether good or bad. We turn information about politics and economics into stories of good guys versus bad guys and identify progress with the triumph of the good guys. In the process, it’s easy to neglect the underlying forces that improve life in small, hard-to-observe ways, culminating in important changes.

In a given year, an extra percentage point of economic growth may not seem to matter much. But, over time, the difference between annual growth of 1 percent and 2 percent determines whether you can double your standard of living every 35 years or every 70 years. At 5 percent annual economic growth, living standards double about every 14 years.
All great points, and Cowen continues to note that these tremendous global gains probably mean that even the United States - despite its obvious and overreported missteps - benefited during the aughts:
To the extent that the rest of the world becomes wealthier, there’s more innovation, as my colleague and co-blogger Alex Tabarrok, professor of economics at George Mason University, argued recently. China, for instance, is moving toward the research frontier in areas such as solar power, scientific instruments, engineering and nanoscience, all of which can benefit the United States. Unlike the situation of just a few decades ago, a genius born in Mumbai now stands a good chance of becoming a notable scientist, whether at home or abroad.

It might be pleasant to boast that America is — or should be — a world leader in every area, but the practical reality is that if some other country solves the problem of green energy, so much the better for us.

The subtler point is that a wealthier China, India, Brazil and Indonesia will lead to more customers for new innovations, thereby producing greater rewards for successful entrepreneurs, no matter where they live. There are so many improvements in cellphones these days because there are so many cellphone customers in so many countries.

To put it bluntly, if the United States takes one step back and the rest of the world takes two steps forward, even in purely selfish terms we should consider accepting the trade-off, if only for the longer run. Most of us gain from the wealth and creativity of other countries, even if we can’t always feel like the top dog.
I couldn't agree more.  Of course, if America's politicians embark on a decade of economic isolationism - taxing imports and exports, while hindering capital and labor flows - most of these benefits disappear. (More on that below.) 

Nevertheless, the miracles of free market capitalism were not isolated to the developing world in the last decade. As Jonah Goldberg reminds us:
[T]he decade of capitalism saw one of the world’s richest men, Warren Buffett, pledge more than $30 billion to a foundation created by another offspring of capitalism, Bill Gates, for the purpose of aiding the world’s poor. Surely capitalism should get some of the credit, since the book on philanthropy in non-capitalist systems is shorter than the guide to cities without Starbucks.

Capitalism doesn’t just create generous wealthy people, but generous poor people, too. Americans give twice as much to charity as the most generous European nations, and the most generous Americans are, in fact, poor Americans....

As it always does, capitalism drove innovation over the last decade. The BlackBerry was introduced in 1999, but the iPhone didn’t exist in 2000, nor did the iPod. YouTube was a fantasy, and no one could even imagine why you’d ever need something like Facebook or Twitter (in fairness, some people still ask that question). iTunes was launched in 2003, and five years later it was outselling Wal-Mart as the No. 1 music retailer. Government-funded basic research in medical science deserves some credit for breakthroughs, but it’s worth remembering that lots of countries invest in basic research. America, with its markets, stands alone as the leading, arguably sole, source of medical innovation. Breakthrough drugs are as American as apple pie.
I'd only add that I first read the Goldberg article on my Kindle, then later pasted it into my blog from my Google reader on my Dell laptop using wireless high-speed internet, while my HDTV (purchased at 0% interest and now paid-in-full) played the NFL Network's RedZone Channel.  Oh, and tomorrow I plan to telecommute to work because I need to meet the Kenmore repairman - scheduled online - at home so he can fix my convection oven.  And all of these cool things were born (or dramatically improved and proliferated) in the aughts.  But like Goldberg mentioned, it wasn't only gadgetry that improved in America, but also the American way of life: for example, today we're living longer and working fewer hours to afford life's necessities than we were only ten years ago.

In short, free market capitalism is awesome, and it was really, really awesome during the last decade.

Of course, not everything's hunky-dory out there today.  But as opposed to the aught-haters, I don't think it has to do with the alleged failures of capitalism or wage-stagnation or the Iraq/Afghan wars or climate change or any other progressive pandemic.  Instead, the darkest clouds on America's horizon are the product of its recent repudiation of the free market, not the market's few, alleged ills.  Goldberg mentions this at the end of his column:
Free markets are in disrepute these days, particularly by the people running Washington. For them, government is the solution and capitalism is the problem. If they have their way over the next decade, they won’t cure what allegedly ails capitalism — people will still steal and lie — but they will impede everything that makes capitalism great. And that will be bad for everyone....
Washington's new anti-capitalist love affair would certainly make Americans and the rest of the world worse off, but Goldberg, I think, misses a related and equally troubling fact - while we diss the free market, many other nations are embracing it and excelling.  As Reason's Ron Hart warns:
Korean automaker Hyundai registered record sales in August. Chinese telecom manufacturer Huawei might soon pass Cisco in sales. Brazil’s jet maker Embraer is, according to Cessna CEO Jack Pelton “scaring us to death.” And more IPOs are happening away from America’s overly regulated capital markets. In addition, India has heart bypass surgery outcomes equal to the U.S. at half the cost, and Singapore is willing to pay U.S. biotech research stars about $715,000 in annual salaries.

In short, we do not have a monopoly on capitalism. We risk losing out to a world market that moves faster and with more resolve today than ever before. Our new political class does not seem to care that innovation and capitalism are fleeing....
This, I fear, is right.  As Cowen noted above, the rising tide of global free market capitalism has the potential to lift all boats, regardless of where the biggest gains are made (and America need not dominate at everything).  And as Goldberg noted, America is still the world's great innovator, market leader and philanthropist.  But developing economies' embrace of most everything that made the United States' economy great - free markets, property rights, labor and capital mobility, technological innovation, free trade, and so on - has allowed them to move up the economic ladder very, very quickly.  While their development - and direct competition - is a good thing for the United States and the rest of the world, the anti-market policies now so en vogue in Washington's snootiest salons threaten to turn the developing world from America's partner to its rival or even its adversary. 

Put simply, the continued enrichment of the developing world is only a good thing for the United States if it continues to embrace free market capitalism. In that case, we might not always lead at everything, but we will be just fine - better even - as the world rapidly develops around (and with) us.  On the other hand, if America goes down the failed road of overregulation, cronyism, nationalization and protectionism, Americans won't benefit from global innovation and development. Instead, the intense competition for capital and talent that we'll face from a gaggle of rapidly developing rivals will only serve to hasten our inevitable decline.

And that would make the next decade far more depressing than the last.


Anonymous said...

I love that Ron Hart writer. He reminds me of PJ O'Rourke. Great work!

Colin said...

From a US-centric perspective I don't see the aughts as some terrible period, rather they were just a wasted opportunity. The US entered the decade at a time of peace, prosperity, some moderate reform of government (welfare) and even budget surpluses. There was really something to build on there, but I fear much of it has been squandered. The wisdom of foreign policy can be debated ad nauseum, but what I find really painful is the squandered economic opportunities such as tax code reform or a further overhaul of entitlement reforms. Much of the growth seemed to be based on a housing bubble propped up by poor public policy.

From a larger perspective, however, it was a fabulous time. Technological advancement continued apace -- watching streaming HD movies on Netflix makes me feel like I am living in the future -- and the rest of the world is hauling itself out of grinding poverty and joining the ranks of the prosperous. It's exciting and makes you wonder what's next.

I have sympathy both for those who curse the aughts and others who believe we are in something of a golden age.